EUROZONE: Avant-garde

Some conservative French institutional investors are looking for ‘smarter investments’, and nowadays that can mean investments outside of France.

Though the identity cannot be revealed just yet, one Paris-based institution known to PERE has a strategy that includes a focus on core income-producing assets in the US. It currently is in the process of selecting a consultant and/or a multi-manager to help it choose the best funds in which to invest. The investor in question does not allocate highly to real estate, is not seeking to expand its exposure and is maintaining a conservative investment style.
Paris-based real estate fund managers with French clients said this is indeed part of a trend of ‘opening up’ towards more international investment than historically has been the case.

Depending on how far back one goes, it generally is true to say that institutions of whichever nationality have had a tendency to invest domestically. There are exceptions to the rule, with investors from The Netherlands being the obvious one, but most have stayed home.

Still, in the long run-up to the global financial crisis, there was a significant tidal change as investors began to ramp up overseas investments, often through funds. Of course, the global financial crisis slowed that movement down dramatically. Like many others, the French retrenched and became much more cautious, inevitably leading to a renewed focus on the domestic market.

New times, new approach

Over the past 12 months, however, those investors again have begun looking at investing internationally, according to experts. The move is not return-driven though – at least, not in the opinion of those based in Paris. In other words, the new approach is not about obtaining a return premium compared to the French market, rather it is about diversification.

One fund manager with which PERE spoke noted that his firm’s French clients currently were eyeing Germany most often as part of this trend. This is interesting because, if anything, the returns might be slightly higher in France than in Germany. Then again, Germany is perceived as being less volatile. The immediate diversification benefits of investing in Germany therefore are plain to see.

Other than this strong trend towards Germany, there is only limited interest among French investors in the next big market, the UK, partly because of the currency risk. In addition, there remains a hangover from two or three years ago, when French investors were worried about the potential impact that austerity measures might have on the UK market.

Over time, though, the largest French investors are expected to fan out from Germany to other European markets when they rebound. However, if that is the headline, the detail presents a slightly mixed picture as painted by various professionals in the market. They reported the following:

Predica, the life insurance subsidiary of Crédit Agricole, has awarded a mandate to its real estate subsidiary, Amundi

Real Estate, for international investment. Simon Allen, a managing director in the alternatives group of Amundi in New York, is responsible for manager selection apparently, though my spies told me that the desire for international investment by Predica may have subsided.

Another investor to watch is Électricité de France, the energy group. This company has had a change of management, but it is considering making real estate investments via European funds, or so the rumor goes. Not only is it investing the company’s balance sheet money, but it also is investing out of a fund designed to meet the costs of making power plants obsolete in years to come. This fund has been investing in bonds and stocks, as well as indirect real estate via funds.

Caisse des Dépôts, the French sovereign wealth fund, has a subsidiary that handles savings funds for French
nationals. The money is used to subsidize public housing in France, but a certain percentage is invested in other types of real estate. Some of that gets funneled into European value-added and core-plus real estate vehicles. Again, my spies informed me that the person responsible for this currently is selecting a number of managers.

Meanwhile, L’établissement de Retraite Additionnelle de La Fonction Publique also is going international as a fledgling investor in the real estate asset class. La Banque Postale is rumored to be searching for managers of core and European real estate, as well as high-yield assets in France.

On the other side of the equation is Cardif, the life insurance subsidiary of BNP Paribas. It apparently has decided to concentrate on its existing portfolio and currently is monitoring existing managers rather than making fresh investments.

MACIFIMO, a life company, and SCOR, another insurer, have invested in funds. Supposedly, they still are looking at investments, but some believe they won’t be very active.

Generali’s French branch certainly was investing in Europe. However, following a change of management, signs are that it will concentrate on direct investments in local markets.

So, there are several examples of French investors looking abroad, as well as others where things seemed to have cooled. Nevertheless, as someone once said, diversification is the only free lunch, and the French do like their gastronome.